HFT is not inherently evil, in the guns-don’t-kill-people-people-kill-people sense. Good evidence for that is in a new white paper available on High Frequency Trading (HFT) from the sovereign wealth fund department of the Norwegian central bank, NBIM. I think it is very well written and an excellent guide to the issues of HFT. Continue reading HFT: Don’t Be Evil
The Italian financial transaction taxation plan has come into effect this week. It includes two aspects, an HFT tax, and an equity derivatives tax. (Since I don’t speak Italian, I am relying on English language reporting for the details.)
I’ll reserve judgement on the derivatives tax. I don’t think market specific taxes are a great idea if they just push order flow onto different bourses. This is an area where market coordination is necessary.
The HFT tax is a step in the right direction. It includes a tax on the practice of making orders and cancelling them within milliseconds, which is one of the most pernicious activities of the algorithms used in HFT. This practice clogs the network with spam, slowing and disrupting real market activity. As with e-mail spam, a tax is the most appropriate measure to curb the abuse of a common good.
Taxes, like other user fees, are sometimes the right way to make the beneficiaries of a service pay for it. Not paying for a service leads to ‘tragedy of the commons‘ issues – abuse and overuse to the detriment of all users.